Courtney and Clarissa are equal partners (50%/50%) in Rockies, LLC, an entity taxed as a partnership. The Rockies LLC agreement provides that all allocations of income, gain, loss, and deduction are to be made equally between Courtney and Clarissa. Rockies sells and repairs snowboards. Rockies had the following items of income and expense for its taxable year ended December 31, 2023. Gross receipts from snowboard sales: $1,122,500 Cost of goods sold: $400,000 Gross receipts from snowboard repairs: $182,500 Salaries: $255,000 Depreciation: $42,500 Amortization: $17,500 Utility expenses: $30,000 Investment interest expense: $8,750 Gain from the sale of equipment (held 4 years) Section 1245 gain (recapture): $50,000 Section 1231 gain: $5,000 Dividends paid by U.S. corporation: $40,000 Charitable contributions: $16,250 Tax-exempt interest income: $5,000 Long-term capital gain on sale of land: $38,750 Long-term capital gain on sale of Beta stock: $11,250 Short-term capital loss on sale of Alpha stock: $5,000 Short-term capital gain on sale of Omega stock: $68,000 Assume the same facts as above. Further assume that at the beginning of Rockies’ taxable year, Courtney had a book and tax capital account of $150,000. A. What is Courtney’s share of taxable income and separately stated items. B. What are Courtney’s updated book and tax capital accounts at the end of the tax year?

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter15: Taxing Business Income

Section: Chapter Questions

Problem 20P

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Courtney and Clarissa are equal partners (50%/50%) in Rockies, LLC, an entity taxed as a partnership. The Rockies LLC agreement provides that all allocations of income, gain, loss, and deduction are to be made equally between Courtney and Clarissa. Rockies sells and repairs snowboards. Rockies had the following items of income and expense for its taxable year ended December 31, 2023.

Gross receipts from snowboard sales: $1,122,500
Cost of goods sold: $400,000
Gross receipts from snowboard repairs: $182,500
Salaries: $255,000
Depreciation: $42,500
Amortization: $17,500
Utility expenses: $30,000
Investment interest expense: $8,750
Gain from the sale of equipment (held 4 years)
- Section 1245 gain (recapture): $50,000
- Section 1231 gain: $5,000
Dividends paid by U.S. corporation: $40,000
Charitable contributions: $16,250
Tax-exempt interest income: $5,000
Long-term capital gain on sale of land: $38,750
Long-term capital gain on sale of Beta stock: $11,250
Short-term capital loss on sale of Alpha stock: $5,000
Short-term capital gain on sale of Omega stock: $68,000

Assume the same facts as above. Further assume that at the beginning of Rockies’ taxable year, Courtney had a book and tax capital account of $150,000.

A. What is Courtney’s share of taxable income and separately stated items.

B. What are Courtney’s updated book and tax capital accounts at the end of the tax year?

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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